The average household will be in “fuel poverty” by the next election in 2015 if energy bills, which have almost doubled as a share of median income since 2004, stay on their current path.
A steady rise in electricity and gas charges could force the government to reconsider its energy policy, said analysts, particularly an official target to spend £200bn on new infrastructure by 2020, including a big expansion of wind power.
Next month, the average annual bill for a dual fuel customer will reach £1,293, or 6 per cent of median household income, compared with 3.3 per cent in 2004. Any household that spends 10 per cent of median income on electricity and gas lives in “fuel poverty”, according to the government’s definition.
David Cameron, prime minister, and Ed Miliband, the Labour leader, have both voiced concern about the absolute level of energy bills. But the relative growth of this burden has gone largely unremarked.
Energy costs have risen more than six times faster than household incomes since 2004. The average dual fuel energy bill has climbed 117 per cent in the past seven years, while median household income has increased 18 per cent. On present trends, energy costs will absorb 7.4 per cent of median household income by 2013, 8.2 per cent in 2014 – and 10 per cent in 2015.
“If the rate of increase continues, it would concentrate minds even further and energy costs would rise potentially to the top of the public’s agenda and therefore of the political agenda,” said David Hunter, energy analyst at M&C Energy Group, a consultancy.
The government believes that creating a greener electricity system requires £200bn of investment. Chris Huhne, the energy secretary, plans to reform the electricity market to make it viable for utility companies to raise this sum. The capital investment, plus a return, would translate into higher bills.
Mr Hunter described the cost as “eye-watering” and said investors would weigh the possibility of the government reneging on its proposed incentives. “That would clearly be a risk that you would have to price in to an investment,” he said.
Ann Robinson, director of consumer policy at Uswitch, an online comparison site, predicted an official reassessment. “I believe there is going to be a U-turn because I believe the government is listening and they’re going to have to face reality,” she said.